Why Are Oil and Gas Prices So High?

Why are gas and oil prices so high? There are many reasons for the spike at the pump, which is hurting today’s middle class Americans, a weaker dollar is a contributing factor.

One reason for high gas prices is the cost of oil, which rose above $109 a barrel last Friday and approaching highs not seen since 2011, as tensions increase over Iran’s nuclear program.

On Friday, benchmark West Texas Intermediate crude oil rose by $1.94 to end the week at $109.77 per barrel on the New York Mercantile Exchange, after climbing as high as $109.98 earlier in the session. Brent crude rose by $1.85 to finish at $125.47 per barrel in London.

Western nations fear Iran is building a nuclear weapon and have been trying to force it to open its facilities to inspection. Iran has refused, turning away international inspectors this week for the second time this month. The United Nations said Friday that Iran has responded to the recent scrutiny by speeding up production of higher-grade enriched uranium, feeding concerns that it is developing a bomb.

As both sides dig in for a protracted standoff, investors are snapping up oil contracts in case fighting breaks out in the heart of the one of the world’s biggest oil-producing regions. “Everyone’s pricing in the potential for war now,” independent analyst Stephen Schork said. “Without a concrete resolution, nobody knows how high this can go.”

Israel hasn’t ruled out an attack on Iran, and Iran has said it is ready to strike pre-emptively, possibly targeting the Strait of Hormuz, if it is threatened. The Persian Gulf passageway is a potential choke point for oil supplies. One-fifth of the world’s oil tankers pass through it every day.

WTI peaked near $114 a barrel last May, while Brent rose above $126 per barrel.

The price of gasoline, which is made from crude oil, has soared with oil prices. The U.S. average jumped by nearly 12 cents per gallon in a week, with state averages above $4 per gallon in California, Alaska and Hawaii.

It looks like they’ll keep climbing. Analysts say gasoline will climb as high as $4.25 per gallon ($1.12 a liter) by late April, above the record $4.11 set in 2008.

The rise will weigh on the U.S. economy, pushing leisure and business travel costs higher. Every one-cent increase in the price of gasoline costs the economy $1.4 billon, analysts say.

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